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Capital Allowances Act 2001


Schedule 2: Consequential amendments

Paragraph 1

2005.This paragraph amends section 42(7) of TMA 1970. That provision deals with claims and elections in respect of activities carried on in partnership.

2006.The amendment includes a reference to section 129 (allocation of expenditure on ships to appropriate non-ship pool). This is included because this Act now provides for an election to allocate expenditure on the provision of a ship to the appropriate non-ship pool. See Change 21 in Annex 1.

2007.Sections 30 and 31 of CAA 1990 deal respectively with the postponement and bringing back into play of first-year and writing-down allowances. The rules for the different kinds of allowance are now dealt with by single provisions. For example, section 131 deals with subsequent claims for both first-year allowances and writing-down allowances that were previously postponed. But under CAA 1990, only claims in respect of writing-down allowances are dealt with in section 42(7) of TMA 1970. To ease the administration for partnerships, this Act ensures that claims in respect of first-year allowances will also be covered by section 42(7). See Change 65 in Annex 1.

2008.The references to sections 40B and 40D of F(No.2)A 1992 replace the references to section 68(5) and (9) of CAA 1990. These are new and arise from the new sections to be inserted into that Act by paragraph 83 of this Schedule.

2009.The references to sections 1 and 22 to 25 of CAA 1990 are not rewritten in this Act. They relate to claims for allowances and are covered by section 3(3) of this Act. See Note 1 in Annex 2.

Paragraph 4

2010.This paragraph amends the Table in section 98 of TMA 1970. That provision deals with penalties for taxpayers who fail to provide the Inland Revenue with required information. Column 1 of the Table deals with cases in which information is required following the service of a notice by the Inland Revenue; column 2 deals with information required in other cases.

2011.The references in column 1 to sections 23(4) and 49(4) of CAA 1990 are to be removed and not replaced. Similarly with the references to sections 23(2) and 49(2) in column 2. This is because sections 23 and 49 of CAA 1990 are not being rewritten.

Paragraphs 13 and 14

2012.These paragraphs remove the references to section 29 of CAA 1990 in sections 65A and 70A of ICTA. These sections state that the rules for furnished holiday lettings businesses do not apply to overseas property. In section 17(1) it is clearly stated that such a business cannot be a qualifying activity in respect of overseas property. As a result, the rule does not need to be restated in ICTA.

Paragraphs 16 and 17

2013.These paragraphs relate to section 63(2) and Changes 12 and 13 in Annex 1.

Paragraphs 22 and 23

2014.These paragraphs amend sections 117 and 118 of ICTA which deal with limited partners. The amendment removes references to sections 141 and 145 of CAA 1990 which have no effect. See Note 75 in Annex 2.

Paragraph 25

2015.This paragraph amends section 198 of ICTA which deals with deductions from employees’ emoluments. The words being removed are to be preserved in the new Act. See section 20(2) and (3).

Paragraph 30

2016.This paragraph is based on section 142 of CAA 1990. It restricts the use of loss relief under sections 380 and 381 of ICTA (income tax losses) in certain circumstances.

2017.The paragraph inserts into ICTA a new section 384A which puts the provision alongside existing similar provisions.

Paragraph 32

There are no longer any allowances that can be given to traders by discharge or repayment.  This amendment therefore omits section 393A(5) and (6) of CAA 1990.  See Note 75 in Annex 2.

Paragraph 38

2018.This removes the reference to section 161(5) of CAA 1990. That provision deals with the “taxing of trades”. This concept is replaced in this Act by treating allowances as expenses and any balancing charges as income. As a result, the opening words of section 411(10) are no longer needed.

Paragraph 39

2019.This removes sections 434D and 434E of ICTA. These are being rewritten as sections 255 to 257 (part of Chapter 19 of Part 2) and sections 544 and 545 (Chapter 1 of Part 12).

Paragraph 40

2020.This updates a reference to section 306 of Income and Corporation Taxes Act 1970 which should have been revised to read section 28 of CAA 1990 when the capital allowances legislation was last consolidated. It is sufficient to change the reference to Part 2 of the Capital Allowances Act and this should be clearer for users of the legislation.

Paragraph 42(3)

2021.This updates the definition for “regional development grant” in section 495 of ICTA. This removes the references to the Industrial Development Act 1982 and the Industry Act 1972 which have ceased to have any practical relevance.

Paragraph 44

2022.This removes sections 520 to 523 of ICTA which are rewritten by Part 8 of this Act (patent allowances).

Paragraph 45

2023.This paragraph amends the reference to section 152 of CAA 1990. That section deals with successions and partnership changes. The principal parts of these provisions have been rewritten as sections 558 and 559. However, as section 525 of ICTA is only concerned with cases in which there is a (deemed) discontinuance of the relevant activity, the revised reference need only be to section 559.

Paragraph 46

2024.This paragraph removes references to sections 520 to 523 of ICTA. See paragraph 45 above.

Paragraph 47

2025.This removes section 530 of ICTA which is rewritten by Part 7 of this Act (know-how allowances).

Paragraphs 48 to 50

2026.These amendments are made as a result of provisions relating to capital allowances for patents and know-how being moved to the Capital Allowances Act.

Paragraph 51

2027.This paragraph amends section 577 of ICTA. That section deals with certain disallowable expenses incurred in providing business entertainment. The provisions relating to capital allowances are included in section 269 and are therefore no longer necessary in ICTA.

Paragraph 52

2028.This paragraph is based on section 35(2) and (3) and parts of section 36 of CAA 1990. It inserts new sections 578A and 578B in ICTA. These maintain restrictions on car rental costs if a car has a retail price when new in excess of £12,000.

2029.This legislation is related to that which restricts capital allowances in respect of cars costing more than £12,000 (see Chapter 8 of Part 2 of the Act). It was introduced with the capital allowances legislation by FA 1971 and consolidated with it in CAA 1990. However the legislation does not deal with capital expenditure and is better dealt with in ICTA.

2030.New section 578A(1) lists the activities that are affected by the restriction.

2031.New section 578A(2) provides that these rules do not apply to “qualifying hire cars” or to cars with a retail price of £12,000 or less.

2032.New section 578A(3) includes a formula to determine the proportion of rental costs that may be allowed for tax purposes. This proportion effectively provides relief in respect of the first £12,000 of the retail price plus half of the excess. So, for example, a car with a retail price of £24,000 will obtain relief in respect of three quarters of the rental costs.

2033.New section 578A(4) deals with rental rebates received. It provides that only a proportion should be taxed as income. This proportion is the same as the proportion that obtained relief under subsection (3).

2034.New section 578B(1) to (3) defines the terms used in new section 578A.

2035.New section 578A(4) provides that the £12,000 threshold may be changed by the Treasury.

Paragraph 61

2036.Section 834(2) of ICTA supplements section 6(4) of ICTA to extend the meaning of “trade” and “profits” in certain parts of ICTA and for the purposes of sections 144 and 145 of CAA 1990. These extended meanings are not needed for this Act.

Paragraph 62

2037.Section 835(8) of ICTA refers to Parts I to VI of CAA 1990. However, in practice, this provision only relates to allowances in respect of special leasing. There is also a similar rule for patents within ICTA itself. As a result, the reference has been replaced to deal with these two specific situations. See Note 62 in Annex 2.

Paragraph 64

2038.Paragraph 10B(2A) of Schedule 19AC to ICTA modifies section 440 of ICTA by inserting a subsection (4AA). This paragraph substitutes a new text of that subsection (4AA) to take account of the way section 81 of CAA 1990 is rewritten in this Act.

2039.Prior to this substitution subsection (4AA) referred to sections 81 and 83 of CAA 1990:

(4AA)Section 81 of the 1990 Act (as it has effect by virtue of section 83(2A) of that Act) shall apply in relation to any case in which an asset or part of an asset held by an overseas life insurance company-

(a)ceases to be within the category set out in paragraph (h) of subsection (4) above; and

(b)at the same time comes within another of the categories set out in that subsection.

2040.The text substituted by this paragraph differs in two respects.

2041.First, it omits the words in parentheses which refer to section 83(2A) of CAA 1990. Section 83(2A), in summary, confirmed that capital allowances are restricted to the part of the trade or other activity that is taxable in the UK. It was inserted by FA 2000. The reference in paragraph 10B(2A) of Schedule 19AC (which was also inserted by FA 2000) was then a useful reminder of its effect. In this Act the effect of section 83(2A) of CAA 1990 is preserved. And it applies to all chargeable periods to which this Act applies. There is then no need to remind readers of the point.

2042.Second, the substituted text refers only to section 13 (use for qualifying activity of plant or machinery provided for other purposes). In contrast, the reference in subsection (4AA) provides for section 81 to apply. That includes, in principle, cases falling within section 81(1)(b) of CAA 1990 – see section 14 (use for qualifying activity of plant or machinery which is a gift). This is however of no effect in the context of subsection (4AA).

Paragraphs 75 and 76

2043.There are no longer any allowances that can be given to traders by discharge or repayment. This amendment therefore removes such references in The Social Security Contributions and Benefits Act 1992 and The Social Security Contributions and Benefits (Northern Ireland) Act 1992. See Note 75 in Annex 2.

Paragraphs 77 and 79

2044.The new section 37(2)(c) of TCGA 1992 and reference to disposal values (rather than “balancing charge”) in section 195 of TCGA 1992 are consequential on a change of approach taken in Part 6 of this Act. Where Part VII of CAA 1990 gives, in respect of qualifying expenditure, an allowance and a charge in the same chargeable period, Part 6 of this Act gives a “net allowance”. See Note 57 in Annex 2.

Paragraph 82

2045.This paragraph is based on section 68 of CAA 1990. That is legislation for expenditure on films which may or may not be capital expenditure. It:

  • treats the expenditure as revenue expenditure (and does other things); or

  • if an election can be and is made, leaves the expenditure to be treated as revenue or capital expenditure in the normal way.

2046.This paragraph puts the provisions with other legislation about films. It includes in the new section 40B of F(No.2)A 1992 a definition of “relevant periods”. This is expressed differently from section 68(3) of CAA 1990. The revised wording makes clear what the relevant period is if no accounts of the trade or business concerned are made up for a period. See Note 76 in Annex 2.

Paragraph 105

2047.This paragraph amends Schedule 33 to the Greater London Authority Act 1999. Subparagraph (3) replaces paragraph 4(9) of that Schedule. At a first glance it appears that the replacement adds a provision preventing writing-down allowances from arising from a qualifying transfer – something that does not appear in the original paragraph. This, however, is not a change as both the original paragraph and its replacement prevent the transfer from giving rise to qualifying expenditure and as a result prevent writing-down allowances from arising. The additional words in the replacement paragraph simply make clearer the preclusion of writing-down allowances.

2048.Similarly with subparagraph (6) which replaces paragraph 10(10) of Schedule 33.

Paragraph 108

2049.This paragraph amends Schedule 22 to FA 2000 (tonnage tax). Most of the amendments are straightforward.

2050.Subparagraph (16) replaces a reference to “section 8(1) to (12) of the Capital Allowances Act” in paragraph 84(2). The new reference (to “Chapter 8 of Part 3”) appears to go wider than the original version. However, paragraph 84 only applies when the company disposes of the relevant interest in an industrial building or structure. As a result, there is no change by now referring to the whole of Chapter 8. Similarly, there is no need to refer to section 351 which deals with additional VAT rebates.

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